Telefônica Brasil - Q3 2023

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Welcome to Vivo Third Quarter 2023 Earnings Call. This conference is being recorded, and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. To access, you can press the globe icon located on the lower right side of your Zoom screen, and then choose to enter the Portuguese room. After that, select Mute Original Audio for a better experience. [Foreign language]

We would like to inform you that all attendees will only be listening to the conference during the presentation, and then we'll start the question and answer section when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals, are the beliefs and assumptions of Vivo's executive board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events, and therefore depends on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry, and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the company, Mr.

David Melcon, CFO and Investor Relations Officer, and Mr. João Pedro Carneiro, IR Director. Now, I'll turn the conference over to Mr. João Pedro Carneiro, Investor Relations Director of Vivo. Please, Mr. Carneiro, you may begin the conference.

João Carneiro (Director of Investor Relations)

Good morning, everyone. Welcome to Vivo's third quarter 2023 earnings call. The presentation will be divided in two parts. First, our CEO, Christian Gebara, will walk us through Vivo's financial and operating highlights, followed by an update on our new sources of revenue and ESG advances. Then our CFO, David Melcon, will comment on our financial performance and shareholder remuneration in more detail. I now hand the call over to Christian.

Christian Gebara (CEO)

Thank you, João. Good morning, everyone. Appreciate you joining us. I start by presenting the highlights of another very strong quarterly result. We delivered a revenue growth of 7.5% year-over-year, and an EBITDA increase of 11.7% year-over-year, both well above inflation. The customer base mix keeps improving. Postpaid access surpassed the mark of 60 million customers, and homes connectors with FTTH summed up 6 million access. Our high-value subscriber base is fueling our growth engine. This growth was combined with improved profitability. EBITDA was at an all-time high, reaching BRL 5.5 billion in the quarter, with a margin of 42.2%, leading to improved bottom line performance, as net income reached BRL 3.4 billion year to date, up 15.9% year-over-year.

As we continue to reduce our CapEx intensity to meet the level guided for the year of up to BRL 9 billion, cash flow generation speeds up. Over the first nine months of 2023, our operating cash flow grew 27.1% year-over-year to BRL 8.9 billion, while our free cash flow expanded 16.7% to BRL 7.6 billion. As such, we are committed to keep an attractive level of shareholder remuneration. Up to October 2023, we already declared BRL 2.6 billion in dividends and interest on capital, while also invested BRL 380 million to buy back our own shares. Moving to slide four, we show the breakdown of our revenue growth. Our focus on best-in-class technologies contributed to total revenue growing 7.5% year-over-year, well above inflation.

On the mobile side, the continuous upselling to postpaid plans, coupled with pricing rationality, allowed mobile service revenues to reach an organic expansion of 9.0% year-over-year in the second comparable quarter since the acquisition of part of Oi Mobile's assets. Handset and electronics posted a 13.5% annual increase as we outpaced the market in the selling of high-value 5G devices and offer a broader portfolio of electronics. FTTH and corporate data, ICT and digital services continue to grow double digits, meeting the demand for high-quality connectivity and digital services. These services are the drivers for the positive expansion of our fixed revenues. Turning to slide five, we can see the improvement of our mix of customers, as postpaid already represents 62% of total mobile access.

Our mobile leadership has been reinforced as we continue to deliver an unmatched value proposition to our customers. This strong operational momentum, combined with our pricing strategy, resulted in an 11% annual growth in ARPU, reaching its highest value in the last three years. While average spending increases, postpaid churn has reduced 39% in the last four years, reaching a very low level of 1.09% per month. With customers staying longer and spending more with us, we see a clear pathway to deliver sustainable, real growth on a consistent base. On slide six, we detail the advance of our top-notch fiber operation. Vivo's fiber footprint is present in 439 cities throughout the country, totaling 25.1 million homes passed, which keeps us on track to reach the target of 29 million homes passed by the end of next year.

In the last twelve months, we added 2.8 million fiber to the home premises and connected 715,000 homes, increasing our network take-up rate after reaching 6 million users, while also improving our ARPU profile. In addition, Vivo Total, our fiber mobile convergent offer, surpassed the mark of 1 million customers, more than doubling its base over the last 12 months. This offer has the lowest churn and the highest lifetime value, putting Vivo in a unique position to benefit from convergence in the long term. Going to slide seven, you can see that the digital B2B services added up to BRL 3.2 billion in the last 12 months, up 28% year-over-year, already representing 6% of Vivo's total revenue.

Even though these services are currently provided by Vivo to only around 10% of our 1.5 million B2B customers. Going forward, we see a significant opportunity to increase the penetration of digital solutions in our existing B2B customer base, mainly in SMEs. With that in mind, Vivo Meu Negócio has a new position and focus on integrated digital solutions for micro, small, and medium enterprises, tailored by size and sector. We offer accessible products related to cloud, sales management, web presence, and efficient tools to help these entrepreneurs adapt their business to compete and prosper. Moving to slide eight, we give an update on the evolution of some of our new sources of revenue in the B2C segment. Financial services generated BRL 106 million in revenues during the quarter, up 45% year-over-year.

Here, we highlight Vivo Money, that ended the quarter with a portfolio of BRL 307 million in personal loans, more than doubling year-over-year. In the end of July, we announced that Vivo Money has a new investor, Polígono, that has committed to invest up to BRL 250 million over the next two years to strengthen the expansion of our credit services. The distribution of video and music OTTs through our invoice totaled BRL 144 million of revenues in the quarter, up 33% year-over-year, coming from 2.8 million OTT subscribers. Our partnership with the main content providers allows us to expand average customer spend, decrease churn, and increase lifetime value.

More recently, we broadened our electronics portfolio, that includes notebooks, smartphone accessories, smart home devices, among others, to complement the experience provided through our connectivity services. These products generated BRL 79 million in revenues last quarter, up 28% year-over-year. We know that revenues from financial services, OTTs, and electronics beyond smartphones, put together, represented 3% of Vivo's total revenues over the last 12 months. As they keep this strong growth pace, we are confident that these new businesses will have a greater relevance over the next years. On slide nine, we highlight some advances in environmental and social fronts. We have a target to achieve net zero emissions by 2040, and to help us reach this goal, we established a program with 125 carbon-intensive suppliers to diagnose, train, and encourage these partners to move towards this commitment.

On energy, Vivo is the first company in the sector operating in energy self-production modality. We announced a partnership with Elera in the state of Minas Gerais, that comprises four solar parks. There are two important recognitions. First, Vivo was the only telco and Brazilian company in Fortune's Change the World list, due to the Vivo Recicla program, our main initiative in circular economy. We also highlighted once again, in the Great Place to Work ranking, being one of the top 10 best companies to work in Brazil. Now, David will walk us through our financial performance.

David Friera (CFO and Investor Relations Officer)

Thank you, Christian, and good morning, everyone. On slide 10, we show the results of our commitment to an efficient cost structure. Total cost was up 4.6% year-over-year, well below our revenue growth. Cost of services and goods sold increased 5.9% year-over-year, as revenue from B2B digital solutions, handsets and electronic increase. Cost of operation, which represent 67% of total OpEx, was up 3.9% year-over-year, decelerating versus previous quarters and below inflation in the period. The performance is explained by the acceleration of commercial activities, continuous efficiency and digital initiatives, bad debt improvements, and a positive net effect on BRL 175 million on matter related to the Oi mobile acquisition.

Moving to slide 11, our focus on top-tier technologies, such as 5G and fiber, is contributing to a better mix of capital spent. In the first nine months this year, we invested BRL 6.7 billion, a decrease of 5.3% year-over-year, representing a CapEx to sales ratio of 17.3%, on track to reach our guidance of CapEx below BRL 9 billion this year. As a consequence of a very strong operating performance, coupled with controlled investments, our operating cash flow sum up an impressive value of BRL 8.9 billion year to date, up 27.1%.... We are optimistic about the opportunities to further reduce our capital intensity going forward.

On mobile, we already cover more than 40% of the population with 5G, while on fiber, a significant part of the home pass footprint we plan to have have already been deployed. On slide 12, you can see that our profitability metrics keep on improving as a result of a very positive operating momentum and solid financial execution. As such, net income and free cash flow increased every quarter of the year on an annual basis, reaching in the first nine months this year, BRL 3.4 billion and BRL 7.6 billion respectively, growing at double-digit rates year-over-year. This also result in a low debt level. Financial net debt decreased 76% year-over-year. Even considering IFRS 16 leases, leverage remains well controlled at 0.6x EBITDA.

All these figures allowed us to keep investing in our growing businesses and maintain an attractive shareholder remuneration. Lastly, on slide 13, we update you on our capital reduction request to Anatel. In September this year, we had a positive outcome, as Anatel granted a prior consent to reduce our capital stock in up to BRL 5 billion in one or more events. With this approval, we have more flexibility to decide the best mix of shareholder remuneration for the next years, through the combination of capital reduction, dividends, interest on capital, and share buybacks. 2023 shareholder payments sum up 4.6 billion BRL year to date, including our share buyback program. Our priority is to continue delivering a unique combination of growth, profitability, and return to shareholders. Thank you, and now we can move to the Q&A.

Operator (participant)

Thank you. We are now going to start the question and answer section for investors and analysts. If you wish to ask a question, please press the button, Raise Hand. If your question has already been answered, you can leave the queue by clicking on the same button. Wait while we pull for questions. Our first question comes from Fredy Mendes from Bank of America. Please, Mr. Fredy, your microphone is open.

Fred Mendes (Equity Research Analyst, LatAm TMT & Healthcare)

Hello, good morning, everyone, and thanks for the call. I have two questions here. The first one is on CapEx. You already mentioned a few times on the presentation that you keep below BRL 9 billion for the year, but historically, the fourth Q is the strongest, the highest in terms of CapEx. So just double checking, because if we use the same numbers for the third Q, you'll be slightly above BRL 9 billion. So just want you to double check that, and how you're seeing this number for 2024. In our calculation here, there is room for some decrease year-over-year in terms of CapEx, but obviously, I would like it'd be great to hear your view on that.

The second point on mobile, I'm assuming also you're already doing the budget for 2024, and obviously, the macro scenario can always change. But, with the information you have today, do you think there is room to, for us to continue to see this real increase in terms of price? Or that's something that happened in 2023, more like a one-off and should not happen in 2024 as well? Thank you very much.

Christian Gebara (CEO)

Hi, Fred, this is Christian. So, going to your questions on CapEx. Yes, we keep what we said. No, we're gonna be up to BRL 9 billion this year for CapEx. There is a seasonality of the CapEx, but that's confirmed, the target that we have for the year. Regarding 2024, we are not giving guidance right now. What I said in the past is that last year was the peak that we had in CapEx because of the whole integration and part of the 5G auction. Some parts of the obligation that we had to invest. This year, as you said in the beginning of the year, this was gonna be a more reasonable CapEx up to BRL 9 billion.

Next year, we're not gonna see any peak, so I don't give a guidance now, but I think it's continued to keep the trend. Regarding the revenues, yes, as you said, no, there is, there are also not, not giving guidance for revenues. What we see here, now that we presented in this call, is that we've been very successful attracting customers, both mobile and fiber customers, so net adds being very strong. Churn is very controlled, actually is in the lowest level in the mobile and in the fixed, if you consider Vivo Total, that we have more than 1 million customers today. We are talking about a churn that is lower than 0.5% per month.

We've been very successful in adding new services to our services in both mobile and the fixed. So you see the ARPU evolution, that is also a good sign of our strategy of adding more services or migrating, upselling customers within the same segment that they are. So combining all of this, I don't see any operational or competitive in our case, no, the value proposition that we offer, to be different in the next months. So confident about the future, but not giving you a specific guidance.

Fred Mendes (Equity Research Analyst, LatAm TMT & Healthcare)

Perfect, Christian. Very, very clear. Thank you very much.

Christian Gebara (CEO)

Thank you, Fred. Thank you.

Operator (participant)

... Our next question comes from Bernardo Guttmann from XP. Please, Mr. Bernardo, your microphone is open.

Bernardo Guttmann (Senior Equity Analyst, TMT & Financials)

Hi, good morning, everyone. Thanks for taking my question. Actually, I have two here from my side. The first one, when considering margin dynamics, you are experiencing a consistent, a consistent growth trend. There seems to be significant potential in leveraging the whole customer base for digitalization and also upselling opportunities. However, it would be valuable to understand the sustainability of this margin increase for the next year, also considering the fixed part of the business. And the second question is regarding, basically asking for an update on the network sharing agreement with TIM, and if there is any discussion to expand the scope for 5G. Thank you.

Christian Gebara (CEO)

So, Bernardo, I will start and then David may continue if he wants in the margin, then I come back to discuss the team. Look, we are growing EBITDA in a very solid way. Now, so as we have been discussing with you in the past, we are growing revenues and EBITDA above inflation, and that's a very positive sign. Actually, revenues is growing all lines. So we are growing mobile, we are growing in what we call smartphones and electronics, and we are growing the fix. Now, in the fix, if you take out what we call non-core, you know, that is voice and DSL, our growth would be at double digits. So positive growth. Part of this growth is also in digital services.

Now, I think I highlighted here 6% of our revenue is already in B2B, digital services, and we can calculate on average, you know, here 3% may be in digital services in B2C. So our mix of revenues is changing. Some of the services, they have a different margin, but they have no CapEx. So if you consider the operating cash flow margin that we are presenting here, or even the free cash flow margin that we are presenting in nine months, you can see a significant increase in these two margins. So our objective here is to continue to grow absolute numbers, revenues, EBITDA, and improving the margins that we present, both in operating cash flow and in the free cash flow, considering the new mix of products that we are selling that I just described here, some of them.

Having said that, of course, there's a lot of initiatives in reducing costs. We are being, we are driving the company to digital, as digital interaction with our customers, that has an impact in customer care, but it also has a strong impact in commissions and many other, commercial, OpEx that we have, that are gonna be reduced when you drive it even more digital. So here's a combination of factors. Obsession here is to increase in absolute numbers, and obsession here is to have operating cash flow and free cash flow margin much stronger.

David Friera (CFO and Investor Relations Officer)

And just let me also add, Bernardo, the question about Oi. So we have the synergies. As we say, we acquired Oi 18 months ago.

We said that we're going to have synergies from OpEx and CapEx of BRL 5.4 billion, equivalent to the amount we paid. This, this is coming nicely every, every quarter. That's why you are seeing, as Christian say, an operating cash flow growth in the quarter of 22.9%. In the, in the first nine months, we are growing operating cash flow in 27.1%. This is the line that we are looking at, and particularly we are monitoring and we are tracking in absolute numbers. Can I go to the network sharing, Bernardo, or any other question on this?

Bernardo Guttmann (Senior Equity Analyst, TMT & Financials)

Yes, please. Thank you. Very clear, the first one. Thank you.

Christian Gebara (CEO)

Okay. So here we have, like, we are very keen on this initiative for RAN sharing with TIM. Here we have three dimensions of this initiative. The first one was expand 4G coverage. So, like, that happened in 716 cities, approximately 360 cities to each of the operators. That was successfully implemented, so cities that TIM had presence and we didn't, and the opposite. So we could do that, and that was great, and we may envision doing more in the near future, especially now that apart from 4G, we may have also the 5G deployment. Then there was a Single Grid model.

That is what, the first tranche of this RAN sharing was focused in cities of less than 30K inhabitants. Here we had a plan to do more than what we did so far. At the end of this quarter, we ended up doing that in 180 cities, but we are now preparing ourselves to do more cities. So it took us more time, technically speaking, especially because we also had the Oi deal in the middle of the process, that we put our network focus in migrating customers and also integrating their frequency in our portfolio. But now, we are again ready to expand the single grid to more cities. I don't give you a number right now, but there's opportunity to expand it.

And then there is a third element of this agreement, that is a 2G network that we want to consolidate and shut down. That also progress. We conclude that, no, the rollout almost, like, think we have, like, more than 1,000 cities today, that we have the 2G networks already consolidated. Here, there is also room to expand it, and once it's expanded, we are close shutting down 2G infrastructures as a whole. So 1,000 cities that we already have the consolidation. In the future, apart from having the consolidation, we may shut down the 2G and use the frequency to other technologies. So that's the status. Some progress, still room to come, and the last year impacted by the integration for both operators.

Bernardo Guttmann (Senior Equity Analyst, TMT & Financials)

Very clear. Thank you very much, Chris and David.

Christian Gebara (CEO)

Thank you, Bernardo, for the question.

Operator (participant)

Our next question comes from Marcelo Santos, from J.P. Morgan. Please, Mr. Marcelo, your microphone is open.

Marcelo Santos (VP and Equity Research Analyst)

Hi, good morning, Christian, David, everybody from the Vivo team. Thanks for the opportunity for making questions. I have two. The first, you had some fines on the decommission of Oi site, so I just wanted to ask where you are on the process of decommissioning this fine, these sites? And, how much gain, if you could give us an idea of how much gain could we expect in leases going forward? And the second question is on fiber adds. You- the number of fiber adds you are having is growing. I wanted to see the outlook you have for this. I mean, you are approaching the levels of last year, so if it's a good sign, is this because of better competitive environment, better macro?

I mean, could you give some color on the reasons for the improvement and the outlook? Thank you.

Christian Gebara (CEO)

I go to the second question, Marcelo. No, the reason, I think, yes, there is the result of a better value proposition. Now, we are in 25 million homes already. We're gonna get to 29 by the end of next year. We have 6 million customers. We've been able to sell, and especially that I think I highlighted here in our stores, most of the customers buying fiber is buying Vivo Total. That has a combination. Either the customer came with the mobile and acquired fiber or had nothing with Vivo and ended up being both fiber and 5G. With the Vivo Total, we have more than 1.1 million. We've been very successful also adding digital service to this offer. We've been also very successful in providing high-speed experience to our fiber customers.

That's also due to the technical network, you know, the high quality technical network that we have and the high quality CPEs that we have. We also have investing a lot in our technicians, so customers buy not only fiber, but also buying a Wi-Fi experience that we're expanding to a smart home experience very successfully. So it's a combination of many factors. Now, here, there is no gain because we are promoting anything. I think the gain of customers is related to a better value proposition, leveraging now what we said before, no. Customer base, network quality, channel, presence, physical and digital, brand, strength of the brand, and the possibility to offer convergence in a way that no one can replicate at the moment.

All this give this very strong results, and we are very positive about the successful trajectory of this strategy going forward. You can add it, or you have more questions in this; otherwise, David will answer about the innovation of the-

Marcelo Santos (VP and Equity Research Analyst)

Thank you, very clear.

David Friera (CFO and Investor Relations Officer)

Marcelo, thank you for the question. So first of all, I think the underlying with the growth we have this quarter is very strong. And it's coming from a significant acceleration of the growth in revenues, but also on controlling the costs and the acceleration of digitalization, Vivo App and so on, no? So we also, as we explained last quarter, we also terminated with the transition service agreement with Oi, that is giving us OpEx savings of around BRL 140 million per year, no? So, as you mentioned, this quarter, we also have a couple of impacts coming from the Oi acquisition. So we finally reached an agreement regarding the Oi price.

So we got BRL 244 million cash back, plus BRL 33 million interest, that are also receiving this also this quarter. And as you mentioned, we also are still negotiating some of the towers leases that we receive from Oi, you know? So in total, we receive 2,700 sites, out of which we are going to maintain 800 of those. So the rest, which is something like 1,900, are going to be canceled and decommissioning in the next, I mean, the next quarters. So we are progressing well on the negotiation with the towers company.

So we have already agreed with some of them, cancellation in the third quarter, and also we are progressing with the rest, and we are hoping to have everything agreed in the next two or three quarters, no? So, overall, I mean, that's it. So we are very efficient on managing those contracts. And as you mentioned, we had an impact of BRL 69 million costs this quarter, which are non-cash, as we are continuing negotiating, and what we see at the end of the next couple of quarters, the end of the negotiation, but this is what we have so far. But I want to mention that the underlying OIBDA growth is very strong.

Marcelo Santos (VP and Equity Research Analyst)

Okay, perfect. Very clear. Thank you very much.

Operator (participant)

Our next question comes from Leonardo Olmos, from UBS.

... Please, Mr. Leonardo, your microphone is open.

Leonardo Olmos (Executive Director, LatAm TMT Equity Research)

Hi, good morning, everyone. Hope you're all well. I got a single question: Can you please discuss the main potential tax change you're facing now, and how could that affect your earnings or other parts of your cash conversion? Thank you.

Christian Gebara (CEO)

Hi, Leo. David can give you more color if he wants, but there is no change right now, now that we are talking about, I don't know, if you're talking about the interest on capital, that is still under the initial discussion. So, David can give you some color. But the other one, the other tax, we're still waiting to see what's gonna be the outcome, the one more related to consumption. Here we are now always advocating for the essentiality of our service. The possibility of having a better tax over digitalization connectivity would help the country in many ways. That's what we try to advocate, because as you know, we pay a lot of tax over the service that we sell to our end customers, on average 35%.

When there was this decrease in ICMS in some states, they were very positive, I think, for inclusion and for many other things that we could calculate here during this period. So, this is the tax that we have right now, the one in interest on capital, David can-

David Friera (CFO and Investor Relations Officer)

Yeah.

Christian Gebara (CEO)

give you some more color.

David Friera (CFO and Investor Relations Officer)

Yeah, no, Leo, thank you for the question. So at this, at this moment, it's too soon to talk about any potential impact, as this matter is not solved, nor defined at the executive or legislature level. Anyhow, if the end of interest on capital goes through in anticipation of a broader income tax reform, which we believe will also have target, a reduction of our current corporate tax rate. So we have relevant alternatives to maintain our solid levels of shareholder remuneration, such as reducing capital stock, liberating the company, speeding up share buybacks, but anyhow, we are not expecting any change this year.

Leonardo Olmos (Executive Director, LatAm TMT Equity Research)

Got it. Thank you. And, since we're on regulation, can you talk a little bit about the secondary spectrum, the use of secondary spectrum by local ISPs? How are you seeing all that? What do you expect?

Christian Gebara (CEO)

I don't know if there is. There is no demand that I don't have anything relevant to share with you, Leo, right now. We haven't been demanded, and so I really don't have anything new to share about it, or what's the specific question, if there is demand or... Because so far there is nothing new to share.

Leonardo Olmos (Executive Director, LatAm TMT Equity Research)

No problem. Thank you very much. Have a good day.

Christian Gebara (CEO)

Thank you, Leo.

David Friera (CFO and Investor Relations Officer)

Thank you.

Operator (participant)

Our next question comes from Victor Tomita from Goldman Sachs. Please, Mr. Victor, your microphone is open.

Vitor Tomita (Equity Research VP, Telecom)

Hello, good morning, all, and thanks for taking our questions. There, we have two questions from our side. The first one is on your recent price up to prepaid plans. Did you notice any elasticity impact, such as lower recharge frequency or other impacts after pricing up your plans on prepaid? And do you see room for pricing up other prepaid offerings this year, or for making other movements on the pricing side? That would be our first question. Our second question would be on fiber-to-the-home. This quarter saw not only some improvement in volumes for fiber-to-the-home, but also some interesting improvements in transport fiber-to-the-home ARPU, with year-on-year growth turning positive. Should we see that as a turning point with FTTH ARPU now potentially maintaining a positive growth trend for more quarters? Thank you very much.

Christian Gebara (CEO)

Victor, going to the second one, we are not giving a trend on that, but, as what I said before, know we've been very successful in increasing the penetration of digital service overall offer, so selling a lot of OTTs together with fiber. We also are increasing the speeds of our offer and also increasing prices related to that. And as you see, the average speed of our customer base is also going up. We share numbers in the last quarter, and we can share also in these numbers, so it's always positive, not only the entry level of the speed, but also the mix that we have in our customer base. And also, we are selling more Vivo Total as a way to bundle more service to the same customer.

So the trend is positive, when you consider that we have a very low churn, and the customers are choosing our offer in a broader sense, fixed more mobile, and also adding digital service and, going up in the speed. I think also another room to grow is that we are going, stronger in this concept of smart homes. So apart from selling, the fiber itself, we are selling Wi-Fi, connectivity in different rooms. We are selling also the possibility of customers paying for service of installation of more devices of a smart home. So all this area of home connectivity, we see strategically room to grow. That was the first. I don't know if you have any more questions on this. In the second, the prepaid is, we are moving the offer.

I think we mentioned, I think you mentioned that the top up face value that we increased, we're increasing the top up face value, but we are also increasing our... We have different offers, no, but we are increasing the value of the bi-weekly offer. That was 15, we are moving already in many states to 17, and the idea is to go to 17 nationally along November. So 17 bi-weekly offer.

Vitor Tomita (Equity Research VP, Telecom)

... Very clear. Thank you very much.

Christian Gebara (CEO)

Thank you, Victor.

Operator (participant)

Our next question comes from Phani Kanumuri from HSBC. Please, Fanny, your microphone's open.

Phani Kanumuri (Equity Analyst)

Hi, thanks for taking my questions. I have a couple of questions. The first one is regarding the timing of the process for the capital reduction process. When is it expected to complete the capital reduction, the capital reduction process, and how would it benefit your shareholder remuneration? The second question is related to the transition agreement. Do you have any updates on what is happening on the transition process? Thank you.

Christian Gebara (CEO)

Okay. I go to the first and go to the second. The first, in the capital reduction, as you all know, we got approved by Anatel up to BRL 5 billion in capital reduction. Now, so, that's where we stand. We are planning to announce the first tranche of this reduction in the next weeks. To do so, we need to first, as a management, submit a proposal to our board of directors that we may do in the next weeks, as I just mentioned. After that, we should call the general shareholder meeting. That has to be realized in 45 days after this call. After the GSM, now, I think if it's approved, the company should grant another 60 days as a period for opposition of creditors.

So considering that, we may approve in the next weeks in our board, then we're gonna call the GSM. So we have to estimate another 120 days to have it executed. So this is the plan for next steps in capital reduction. In the other question, specifically about the migration, and I don't know what is your question about it, because as you know, we have two things here going on. Now, we have one, that is a discussion about the value of the migrations that we discussed with Anatel. They come up with the number, the BRL 8.7 billion, that we, we discussed. Now, we want to discuss this number because there is some, some, not a convergence in the value.

On the other, on the other hand, we also have an arbitrage process with Anatel, where we discuss a financial equation of the concession that's more the imbalance of the original contract and also the sustainability of the contract. For this, we are demanding more than BRL 8.7 billion. We don't give the number, but it's a high number where we see the unsustainability and the imbalancing of the concession. That is in arbitrage. There is now a solution or an alternative, not a solution, but an alternative, that TCU opens up for a consensual solution, where we could put the two discussions on the table and try to come up with a consensus, and we are betting on that solution.

So to do so, we have a suspension of the arbitrage process because we want to discuss with the TCU mediating it, the solution consensual with Anatel. Anatel submitted this request to the consensual solution to TCU. We are now waiting TCU to accept it. If they accept it, we're gonna have a commission installed, and we're gonna have 120 days to reach this consensual. And after this final approval by the court, it may last up to another 90 days to get it, everything approved, so 210 days. So now what we are waiting for is TCU to approve that we can establish the consensual solution or start discussing the consensual solution. So it's more or less where we stand in the process. If you need more details, then our team here can give you more color on that.

Phani Kanumuri (Equity Analyst)

Very clear. Thank you, everyone.

Operator (participant)

Thank you.

Christian Gebara (CEO)

Thank you.

Operator (participant)

Our next question comes from Carlos de Legarreta from Itaú BBA. Please, Mr. Carlos, your microphone is open.

Carlos Legarreta (Director and Senior Equity Analyst)

Hi. Thank you. Good morning. I have two questions on my side. The first one regarding your personal expenses, and I would like to understand what has been the driver year to date, and also, how do you see personal expenses evolving in 2024? And secondly, talking about the B2B business, you know, obviously you've done very high growth, 28% in the last 12 months. Just want to get a sense if that is because you're adding new services or you're just overall growing faster than the market. Thank you.

Christian Gebara (CEO)

I go to the second, Carlos, and then I would let you go to the first question, okay? B2B is, yes, we are always launching new services, but we are very focused on the verticals that you know. Now, that is cyber, that is IoT, that is cloud, and there is also sale of equipment. So that's the main focus as a product perspective. But within this family of products or services, we are always adding new ones, especially when to customize that to specific verticals, that we are very structured now by verticals. So the agro business has some demands different from the retailers. So we also always trying to adapt to the needs of a specific vertical and also the needs of the different size of companies.

As you know, Vivo has 1.5 million customers in B2B, ranging from micro companies, small company, up to the largest companies of this country. So we structure also our value proposition based on the size of the company. I think I highlighted in my speech, Vivo Meu Negócio, Vivo My Business, that is very focused to the small company, and here we add cloud services, cybersecurity services, very tailored to this size. So what we are doing here is always innovating, but increasing the penetration. I also said that we sell through Vivo, digital services in these categories that I just mentioned, to less, to the 10% of our customer base. So there is room to sell to more customers and also room to sell more service to the existing customers.

So the growth will come this way, more services to our customer base and always innovating in these categories, and always also considering new categories if they come along in a relevant way for us to address digitalization. I think here what we see is a huge opportunity for digitalization companies in Brazil, especially if you go to the mid-bottom, where the level is very, still very low. After pandemic, these customers are very interested. They need someone to help them doing that. We have 5,000 sales reps that can be very close to these customers and help in this digitalization process.

I don't know if I answered your question, but that's what we have right now, BRL 3.2 billion annual basis of revenues, more than 6% of total revenue, double-digit growth in the last quarters, one after the other.

David Friera (CFO and Investor Relations Officer)

And Carlos, taking the first question on personal costs. I mean, the main driver for this growth is have to do with insourcing of activities. These are mainly area related to IT and B2B, and also accelerating the growth in new services and new businesses. As of course, we need to also to recruit the best people for to drive those businesses, no? Plus the salary increase that we normally have as part of our business as usual. I think regarding the trends, if you look to the number this quarter, I mean, we are growing less than we were growing the second quarter, and also less than what we were growing on the first one. So we are seeing a positive trend.

But as we said before, total cost is what we are looking at. So no matter perhaps if it's one line or another one, and we are seeing a very controlled cost and growing below inflation, no? So that's it.

Carlos Legarreta (Director and Senior Equity Analyst)

Thank you for the color. I guess as a follow-up to that, is that insourcing process expected to finish, you know, in the near future, or should we continue something, I mean, this 2G to be a driver to perhaps drive OpEx growth above inflation for next year?

David Friera (CFO and Investor Relations Officer)

I mean, this is something that we, we do, I mean, ad hoc, so depending on what we see the, the evolution, there is no big program for insourcing that could drive this cost up. But this, I would say, this end up being more as business as usual.

Carlos Legarreta (Director and Senior Equity Analyst)

Okay, so just an ongoing process?

David Friera (CFO and Investor Relations Officer)

Yeah.

Carlos Legarreta (Director and Senior Equity Analyst)

Okay, thank you so much.

David Friera (CFO and Investor Relations Officer)

Thank you.

Operator (participant)

Our next question comes from Carlos Sequeira, from BTG Pactual. Please, Mr. Carlos, your microphone is open.

Carlos Sequeira (Managing Director, Head of LatAm Telecom & Technology Research)

Hi, good morning. Guys, congratulations on the results, were amazing. I have a couple questions, really. One is, Bernardo asked earlier a question on RAN sharing agreement, and I want just to make a follow-up. I saw that Anatel put up for public consultation rules that prevent the big telcos from executing RAN sharing agreements in cities with less than 100,000 people. And my question is, does that change in any way your plans or capital requirement, assuming it's approved, right, to deploy 5G in these small cities, please? That's the first one, and the second one is a more straightforward one. Oi put up for sale its fiber client base, and I'm wondering if that makes sense for Vivo eventually. Thank you.

Christian Gebara (CEO)

I do. Thank you for the comments and the question. The first one is a public hearing, you know, that Anatel has in place. Yes, I think we're gonna give our opinion. I think, rent sharing is a very positive way to optimize CapEx and to increase, coverage. And I think the country that needs more coverage, needs to find new models of a network expansion, especially now that we have 4G, 5G, and in the future, we're gonna have different technologies. So our opinion here is that rent sharing should be available, and we are doing that in 2G. That is a, like, technology that we can shut down.

We are doing that in Single Grid, we are doing that in 4G with TIM, as I explained to Bernardo, and of course, we imagine doing that with different technologies in more places. And again, that's necessary to a country the size of Brazil, to reach everyone. Now, there's a lot of discussions also about schools being covered, suburban areas being covered, semi-remote areas in Amazonia being covered, and we are keen on covering that, but we need to save CapEx in other places to be able to reach this coverage that is also demanded, and we want it to fulfill. So again, participating and having a very strong opinion about coverage and the need to optimize investment. Second one, we're gonna... It's a new process of the sale of Oi customer.

We need to understand, especially because we don't have any detail. Understand that these customers, they today are using the infrastructure of a neutral network. So what is the relationship and what is the contract of these customers that Oi has today with the neutral company? Not the V.tal, in this case. Who buys customer, buys the contract, what are, what are the conditions of this contract? So I think there are many questions to be answered. We participate in everything related to any opportunity in the fiber business. So far, we haven't been a buyer of anything, but again, being the number one company in network and in customers in Brazil, we need to see what is there and understand all the details, especially related to the contract of the usage of the neutral network that I mentioned before.

Carlos Sequeira (Managing Director, Head of LatAm Telecom & Technology Research)

Okay, thank you, Christian. So on the range sharing, my understanding is that you hope that these, you know, this possibility will not materialize, right? Anatel will understand that there are bigger goals they should be looking at, rather than preventing companies from doing range sharing, right? That's your view.

Christian Gebara (CEO)

Yes, that's my view. That's my view.

Carlos Sequeira (Managing Director, Head of LatAm Telecom & Technology Research)

Yeah, and on the Oi process, do you have an idea on timing for that? Or it's so new that you don't have any idea? Just wondering. I don't have any.

Christian Gebara (CEO)

We don't have any official timing that was presented to us. Only in the press, nothing official.

Carlos Sequeira (Managing Director, Head of LatAm Telecom & Technology Research)

Okay. Thank you very much.

Christian Gebara (CEO)

Thank you.

Operator (participant)

Thank you, Carlos. Thank you. This does conclude the question and answer section. We would now like to hand the floor back to Mr. Christian Gebara for the company's final remarks. Please, Mr. Christian, you may proceed.

Christian Gebara (CEO)

Well, thank you all for participating. Now, we are very, like, satisfied with a very strong quarter, now the third in this year, with strong results in our lines. We keep on with our strategy, know that, it's based on having the best infrastructure for digitalization in the country, and the ability to go beyond telco and add new digital services. And I believe we've been able to prove that it's also successful and relevant, part of the revenue going forward. So again, we have all the team here available for any additional question that you may have. And once again, thank you for your participation.

Operator (participant)

Vivo's conference is now closed. We thank you for your participation and wish you a very good day.